Inflation targeting and monetary policy in practice: the experience of the Bank of England

Simon Lloyd, Huw Pill and Galina Potjagailo

Chapter 26 in Research Handbook on Inflation, 2025, pp 551-569 from Edward Elgar Publishing

Abstract: This chapter provides an analysis of the Bank of England's experience with inflation targeting since its introduction in 1992, following the UK's exit from the Exchange Rate Mechanism. It discusses the formal establishment of the Monetary Policy Committee (MPC) in 1997, which was granted the operational responsibility to achieve an explicit inflation target. Initially set at 2.5 per cent for the Retail Price Index (RPI), the target was adjusted to 2 per cent for the Consumer Price Index (CPI) in 2003. The chapter outlines the evolution of the UK's monetary policy framework, including the adoption of unconventional tools like quantitative easing in response to the Global Financial Crisis. Despite various challenges, including the COVID-19 pandemic and geopolitical events like Russia's invasion of Ukraine, the UK's inflation targeting framework has largely succeeded in maintaining price stability. The chapter also highlights the distinct features of the UK's economy that influence its inflationary dynamics and examines the implications of these characteristics for monetary policy. It concludes by reflecting on the lessons learned and future directions for the Bank of England's monetary policy strategy.

Keywords: Inflation targeting; Monetary policy; Consumer Price Index; CPI; Quantitative easing (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035327751
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